Peso inches up on Fed cut bets after US CPI

THE PESO rebounded against the dollar on Thursday as the November US consumer price index (CPI) was within market expectations, boosting bets of another US Federal Reserve rate cut next week.

The local unit closed at P58.24 per dollar on Thursday, strengthening by four centavos from its P58.28 finish on Wednesday, Bankers Association of the Philippines data showed.

The peso opened Thursday’s session sharply weaker at P58.40 against the dollar. Its intraday best was at P58.21, while it dropped to as low as P58.42 versus the greenback during the session.

Dollars exchanged decreased to $1.34 billion on Thursday from $1.81 billion on Wednesday.

“The dollar-peso initially traded higher due to overnight dollar strength after the release of US inflation data. However, there was profit taking as the US inflation data came out within market expectations,” a trader said in a phone interview.

The peso also continued to be propped up by the seasonal remittance inflows, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

For Friday, the trader sees the peso moving between P58.10 and P58.50 per dollar, while Mr. Ricafort said the local unit could range from P58.15 to P58.35.

The US dollar traded in a narrow range on Thursday even as investors ramped up bets that the Federal Reserve will cut interest rates next week, Reuters reported.

Markets are also pondering how President-elect Donald J. Trump’s proposed tariff and tax cut policies, which are expected to be inflationary, could impact the Fed’s outlook.

A rise in US Treasury yields offered support for the dollar.

The dollar index, which measures the greenback against six major peers, was mostly unchanged at 106.580 after rising to its highest since Nov. 27 at 106.81 on Wednesday.

The dollar rose 0.17% to 152.72 yen, after hitting a two-week high of 152.845 yen the previous day as market players trimmed back bets for a rate hike in Japan next week.

US consumer prices increased in November by the most in seven months, but the Federal Reserve was still expected to deliver a third consecutive interest rate cut next week to support a labor market that has been cooling.

Progress in lowering inflation toward the US central bank’s 2% target has virtually stalled, with the report from the Labor department on Wednesday also showing no improvement in the measure of underlying price pressures over the past four months.

The consumer price index rose 0.3% last month, the largest gain since April after advancing 0.2% for four straight months, the Labor department’s Bureau of Labor Statistics said.

In the 12 months through November, the CPI climbed 2.7% after increasing 2.6% in October. The rise in the CPI was in line with economists’ expectations.

The annual increase in inflation has slowed considerably from a peak of 9.1% in June 2022. The Fed’s focus has shifted more toward the labor market. Though job growth accelerated in November after being severely restricted by strikes and hurricanes in October, the unemployment rate ticked up to 4.2% after holding at 4.1% for two consecutive months.

Excluding the volatile food and energy components, the CPI increased 0.3% in November, rising by the same margin for the fourth consecutive month.

In the 12 months through November, the so-called core CPI gained 3.3%, matching the advance in October. Over the past three months, the core CPI averaged a 3.7% annualized rate.

Based on the CPI data, economists estimated that the core personal consumption expenditures (PCE) price index rose 0.2% in November after advancing 0.3% in October. Core inflation was forecast increasing 2.9% year on year after gaining 2.8% in October, in part because of unfavorable base effects.

These estimates could change after November’s producer price data due for release on Thursday.

Despite the lack of progress in the inflation fight, investors took comfort from the moderation in the cost of rent and the fact that core inflation had not deteriorated.

Financial markets have almost fully priced in a quarter-percentage-point rate cut at the Fed’s Dec. 17-18 policy meeting, according to CME Group’s FedWatch Tool. Before the release of the inflation data, the odds were roughly 86%.

Economists expect policy makers will signal fewer rate cuts in 2025 when they update their summary of economic projections next week. Though slower inflation is forecast next year as rent costs cool further and labor market slack grows, that could be offset by higher prices from tariffs on goods and mass deportations of immigrants that have been promised by Mr. Trump.

The Fed kicked off its monetary policy easing cycle in September. Its benchmark overnight interest rate is now in the 4.5%-4.75% range, having been hiked by 5.25 percentage points between March 2022 and July 2023 to tame inflation. — A.M.C. Sy with Reuters